Innovation is the way to growth, not redistribution
Social justice politics clashing against the demands and opportunities of an intensely integrated global economy was already stressing societies before Covid. Despite prosperity paths becoming a global norm, a majority of South Africans will, in all likelihood, be locked into poverty a generation from now. How will future generations judge today’s failing stewardship?
The US’s current political pivot requires a fresh assessment of how social justice and commercial objectives can either align or conflict. Neither Donald Trump’s personality nor his core views ever varied materially from when he campaigned in 2016. Should he be judged more harshly than those who created the environment that led to him being elected? As our economy slips perilously with workable solutions seeming more elusive, our corresponding introspection must be fast tracked.
As her social justice views align with those of many Democrats, the early front-runner to depose Trump was senator Elizabeth Warren. Ebrahim Patel is the ANC’s version of Warren. Unlike most of his colleagues, he scores impressively in terms of abilities and integrity. But the Warrens and Patels are ideologically anaesthetised to the increasingly harsh trade-offs between growth and government-directed redistribution.
Many Asian economies have bulged through expanding value-added exports. This has produced huge upliftment while resetting the global economy. Therefore governments’ scope to redistribute income to disadvantaged groups without undermining growth has narrowed considerably. This ties to how pursuing economic sovereignty has become prohibitively expensive. Rather, countries with much poverty can benefit tremendously from selling to the world’s greatly expanded middle class.
Whereas economic sovereignty used to be seen as resource independence, today many resource-endowed nations are urgently pursuing diversification. Middle Eastern laggards have acknowledged the unsustainability and anti-development aspects of exporting raw materials. Lacking the middle class spending capacity that is essential for alleviating large-scale poverty, they must add value to exports. Amid an innovation-driven global economy, indulging fantasies of economic independence undermines competitiveness and growth.
That the US is largely resource independent does not explain the resilience of its purchasing power. Instead this stems from it having so many productive workers and because so many US households have accumulated considerable wealth. Yet the US economy cannot afford to seriously indulge isolationist temptations. International trade and innovation have usurped industrialisation to become the world’s primary growth drivers.
The civil rights movement in the US has long been advancing, yet workplace discrimination persists. However, arguments for more legislative interventions are undermined by a world that demands, and rewards, focusing on growth and developing skills. Interventions that take from one group to benefit another become increasingly divisive and less effective than growing jobs and spreading prosperity.
SA is the global poster child for the perverse political and economic effects that redistribution-focused politics provoke. Populism-spurred patronage has sapped the economy’s vitality, thus entrenching unemployment and poverty. Growth rates and debt-to-GDP metrics do not capture how our economy is misaligned with globally determined success drivers. Typical young South Africans’ life prospects are markedly inferior to their counterparts in other regions.
That Patel and Warren are genuinely concerned about injustices is no excuse for their dismissing how Asia’s growth model has uplifted over 1-billion people. Erosion of our early wins from the 1990s transition is set to persist for decades. It suits elected leaders to convince us that inequality is the source of our economic angst as this blurs accountability. Similarly, populist sentiments are easily exploited by unsustainable measures that harm businesses while providing modest short-term benefits to those who need sustainable employment.
Asia’s high volume successes demonstrate how sustainable prosperity requires a significant portion of a nation’s workforce be able to add value to exports and that households save adequately. Wage differentials can counter initial productivity disparities, which then contract as skills compound. Policies centred on redistribution impede workforce development while heavy debt loads block household advances.
Before the information age wealth was typically achieved by wrangling control of things that had long existed, such as land or natural resources. Today, great wealth is achieved by inventing things that others freely choose to use. Innovative founders holding large shareholdings spur further innovations. Critics ignore how this creates jobs while taming industrialisation’s less sustainable tendencies.
Many South Africans cannot find work while others spend beyond their means. Wealthy innovators work doggedly because they are builders. Their high-wire risk taking and incessant innovating are not motivated by consumption aspirations. Conversely, our governing elites cannot come close to growing the economy fast enough to cover our rapidly rising debt costs. That they do not think like builders is central to why our economy is in tatters.
Our national dialogue is too detached from global realities to recognise and adapt to emerging opportunities. Future generations will judge all of us harshly.
Hagedorn is an independent strategy adviser.
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